COVID-19 UPDATE: White House announces alliances to vastly expand testing in next month (8mm/month, Federal). And rising opportunity cost of being "undecided" as S&P 500 100 points higher than 50% retrace.

COVID-19 remains a global crisis and we realize that many people need to keep up with COVID-19 developments, particularly since we are moving into the more critical stage (“restart economy”), so feel free to share our commentary to anyone who has interest.

The White House briefing focused on the rapid expansion of testing capacity underway in the US. According to Admiral Giroir (designated to coordinate COVID-19 testing), the US will be able to conduct 8 million tests per month (federal level) by next month with Abbott Labs, LabCorp, Quest Diagnostics providing additional testing. In short, the US is on track to conduct 500k-750k tests per day (with private sector additions). For policymakers, and especially state governors (the NGA), this is a key gating factor to getting the economy open. Whether testing is the key factor, that doesn’t matter, since it matters to policymakers.

But the broad picture is that the US private sector and policymakers have mobilized in a huge way to deal with COVID-19. And states are mostly showing improvements. As of today, 20 states have announced plans to re-open their economies in the next few weeks, with West Virginia being the most recent to announce. These states are 33% of US GDP and the largest of these states is Texas. By our analysis, 6 of these 20 have shown sustained and pervasive improvements in case count (see below) but this doesn’t mean the other 14 states are not correct to open. Rather, we believe there are actually another 11 states that should be added to the 20 already — meaning as many as 31 states should consider opening in the next few weeks. This excludes NY state.

On the healthcare side, NY Gov. Cuomo announced the results of a second serological study (this time 7,500 tests) and shows prevalence 10X official estimates and affirms mortality for NY state is 0.56% or so, way less deadly than the 5%-10% seen in official stats.

The rising opportunity cost of being “undecided” or “sidelined” on stocks…
The stock market, in the meantime, remains resilient, closing 100 points the critical 50% retrace line (2,793) and in the face of a healthy high-yield market, argues that equities have upside. This despite what we sense as widespread “uncertainty” about equities and thus, many investors remain sidelined or “undecided.”

The past 4 weeks has been the most devastating gauntlet for equities –>
– COVID-19 pandemic,
– World economy shuts down,
– OPEC blows up,
– worst GDP print since the Great Depression,
– 6mm unemployed claims,
– WTI near contract goes negative at -$48 per barrel (how does that happen?)
– 1Q2020 EPS missing by 20%

Yet, the S&P 500 has managed to claw back >50% of its losses and NASDAQ is now up YTD. This resilience is telling that the consensus narrative of “economy gonna tank so gets out of stocks” is overly pessimistic. And as we highlight at the end of this note, there are positive tailwinds building as we move into May. We realize many investors were understandably expecting a “retest” of the March 2020 lows and potentially break below 2,200 towards 1,700. This could happen, but is there another gauntlet of headwinds worse than what we saw in the past 4 weeks? If not, we think it less likely to retest the lows.


POINT #1: NY announces 2nd serological study affirms prevalence 10X the “official estimate” — NYC est. 25% prevalence. Why is NYC still closed?
Gov Cuomo in his press briefing today announced the results of the second serological study (using antibodies). This second study is expanded with 7,500 participants and is also conducted 1 week after the first study (results are announced two weeks after the testing completed). The results are consistent with the first study:

– NY state overall is estimated to have 15% of the population (+100bp from 13.9% prior study) and is 10X the official rate.
– NYC is now estimated to be 24.7% from 21.2% or up 350bp in the period between the studies. This again is 13X the official rate.
– 6 of 6 studies (below) show that using anti-body studies, the prevalence of COVID-19 is 10X to 50X to 85X greater than realized.

As noted previously, this has big implications for understanding disease severity (most are therefore showing no symptoms) and the lower “death rate” as the number of cases is vastly higher. And we also think this suggests policy options should change, with treatment > vaccine and treatment arguably > testing.

We wrote our thoughts on the first NY serological study and its relevance to NYC. We updated this chart below. And as shown, this shows that as much as 2.1 million NYC residents are COVID-19 positive. And an estimated 25% of the city has been exposed to COVID-19 and has active antibodies.

– Using the serological data, the mortality rate for COVID-19 in NYC drops from 7.3% “official” to 0.56%, which is a massive decline.
– Moreover, if 25% of NYC residents are already showing antibodies, it does raise the question of whether the city should remain under lockdown.
– After all, even with strict “stay at home” measures, the prevalence of COVID-19 has increased by 280bp (as % population) in just 4 days.

The fact that cases prevalence rose from 21.9% to 24.7% in 4 days (+280bp) raises the question if “stay at home” makes sense…
We are not epidemiologists. But COVID-19 seems to be rapidly spreading in NYC, despite strict “stay at home” order.

If so, it does raise the serious question of whether keeping the NYC economy closed makes any sense. That is if COVID-19 continues to spread in NYC, and cases are rising by 280bp every 4 days, what is the purpose of shelter at home?

In fact, as we noted in prior notes, the official daily case count in NYC remains 3,000-4,000 per day and is not abating. And if the risk of serious health developments is 8% of cases (92% show no symptoms), perhaps policymakers should reconsider their containment strategy.

NY State COVID-19 fall to 3,951 from 5,902 yesterday and 10,553 two days ago, but testing is down big as well…
Daily cases are going to be less reliable going forward, to the extent testing figures change. NY state reported a drop in cases to 3,951 but and this is down from 10,553 two days ago. But as shown, total NY tests is down from 46,000 to less than 20,000. So the case numbers are increasingly subject to the number of tests.

But Gov Cuomo is using cases as less of a yardstick, for several reasons. Hospitalizations are falling. And also, his serological studies show that the prevalence of COVID-19 is already much higher. And those studies show the cases are actually still surging in NYC.

Source: Fundstrat + Johns Hopkins + COVID-19 Tracking Project

US daily new cases fall to 22,207 but “testing” fell and CT + NH reported no case data today…
Total reported cases in the US fell to 22,207, which is the lowest figure since late March. But as we know from the past few days, the case numbers tend to jump around on a daily basis, particularly around early in the week (Sunday and Monday reporting). In fact, reported “tests” is down by 50% today versus yesterday, so a drop in cases should not be entirely surprising.

Source: Fundstrat + Johns Hopkins + COVID-19 Tracking Project

As shown below, total tests were 152,595 compared to 258,206 the day prior, so this drop in tests is accounting for a similar drop in cases. But as the White House noted in their briefing today, the number of tests will soon reach 500,000 per day (Federal) and within a month, reach double that. And factoring in the testing done by Abbott, Quest Diagnostics and LabCorp, and US testing should reach 1mm per day soon.

Source: Fundstrat + Johns Hopkins + COVID-19 Tracking Project

The US overall data fell and it is primarily due to the drop in tests. At the state level, only CA and Virginia reported a meaningful rise in cases. But as we have all become accustomed to, the daily changes in the state reported cases can be jumpy.

Source: Fundstrat + Johns Hopkins + COVID-19 Tracking Project



POINT #2: 18 STATE ANNOUNCE RE-OPENING: West Virginia announces plans to re-open (seems appropriate) and Texas clarifies

20 STATES ANNOUNCE RE-OPENING = 33% GDP
Based on our tracking (please correct us if we omitted anything), 20 states have announced plans to re-open, with West Virginia today being the latest. The list below does not include NY state but NY Gov. Cuomo yesterday, said he should soon announce plans, but this is likely sometime after May 15th.




Texas Gov Greg Abbott today clarified its plans for a phased opening, with restaurants and other places opening by May 1, this Friday.

West Virginia announces plans to open by 4/27/2020…
West Virginia Governor Jim Justice announced plans to re-open the state (https://www.wboy.com/top-stories/watch-live-wv-gov-justices-monday-covid-19-briefing-set-for-1030-a-m/). Like other states, this is a phase approach. Elective medical procedures starting 4/27/2020 and week 2 (May 4th), small businesses and outdoor dining and grooming for animals. By week 3, a broader opening is greenlighted.

In our view, it makes sense for West Virginia to open. Look at the summary statistics below. The state seems way ahead of the “curve” and well past the apex:

– 66% of the counties (based on Pops) have seen cases fall 75%
– 19% of the counties have ZERO cases in the past 7 days and 10% with ZERO in past 2 weeks.
– Overall daily cases are down 68% from the highs.
– For a state of 1.8 million, the number of cases reported in the past day is 25.
– Cumulative cases per 1mm residents is 524, which is one-fifth of the US overall.

These are impressive figures. And a reason West Virginia seems qualified to open.

Source: Fundstrat + Johns Hopkins + COVID-19 Tracking Project

Using similar criteria, these 17 states have seen the most case reduction = ready to re-open = 17% of US GDP
If we were to measure the “readiness” of a state to re-open, based on:
1. sustained decline in cases (>50% from the peak, but better if >75%)
2. pervasive decline in cases across the state (% population in counties with >75% decline)

We come up with the list of 17 states below. We are not state governors, nor policymakers. So take our views with a grain of salt. In total, these 17 states = 17% of US GDP, with Florida representing the largest state at 5.1% of US GDP (and Florida is a top 8 state in GDP terms). Florida has already opened some beaches.

– 7 of these states have >75% drop in cases including Hawaii, Vermont, Montana, Idaho, Louisiana and Arkansas. In fact, 3 of them had less than 10 cases in a day. Less than 10.
– For Montana, 59% of the county (based on Pops) had ZERO cases in the past 7 days.


Of these 17 states, 6 have announced official plans to reopen (see above table) –> Idaho, Vermont, Montana, Tennessee, Arkansas and West Virginia (the latest to announce).

Source: Fundstrat + Johns Hopkins + COVID-19 Tracking Project



POINT #3: More data points emerging that US economy bottomed and is now inching higher, which should accelerate as more states open

Deep Macro data shows retail traffic bottomed in mid-April and is turning up even for Restaurants + Clothing + Retail
Deep Macro, founded by Jeff Young, does some really great work using big data to see economic trends. Their latest commentary notes that retail locations, using cell phone activity, show traffic improving across many retail categories. FYI, their site is https://beta.deepmacro.com/faq if you are interested in more info.

– Notably, notice even Restaurants and Clothing, both the hardest hit are showing an upturn.
– Clothing retailers were the worst hit with traffic down -80% through mid-April.

Even TSA airline traffic seems like it has bottomed and is now +50% from two weeks ago but still down 95% from January
TSA now provides daily passenger traffic data and as shown below, this figure seems to be staging a steady climb from the nadir. Total passengers passing through bottomed on 4/14/2020 at 87,534 and has since risen to 128,875.

This figure compares to 2.1 million in January. So it is still way down. But given most of the US remains under stay at home, the fact that traffic is improving is still a sign the US economy likely bottomed.

Source: TSA

Apple’s mobility data shows NYC residents have doubled activity since late March… is this good or bad?
Apple (AAPL) recently provided some mobility data, showing the activity of its users for various cities and countries. The data for NYC is shown below. This is in 3 categories, driving, walking and mass transit.

The mobility data shows the collapse in movements from early March, consistent with the rapid spread of COVID-19.

– the movement fell until late March. And at the nadir, walking was down 81% from January 2020 levels.
– since late March, walking has 2X to 35 (index). Driving has similarly increased.
– But walking is still down 65% from January.

So this could be viewed as good or bad. The bad is that NYC is not complying with a stay at home. Or least, the % with compliance has fallen.

But that is not the only way to see this. This could also show that NYC is doubling foot traffic but case levels are not soaring. This would be an argument in favor of ending the stay at home quarantine.

Source: Apple Mobility data



STRATEGY: With High-yield “normal functioning” and equities taking horrible 1Q2020 EPS in stride, there is a growing opportunity cost of “no view” or “being sidelined”

Equities rallied today and the exact reason is not really apparent (at least to us). But with the S&P 500 closing at 2,878, or 100 points above the 50% retracement level, there is a growing opportunity cost for those who stay “undecided” or “sidelined” regarding equities.

The stylized timeline below is something we showed in early March 2020, with the idea being that as moved through March, the worst of the headline risk would be behind us. And in fact, the market has already cleared some huge wall of worries:

– OPEC collapse
– Jobless claims >6mm
– GDP set to fall 40% in 2Q2020
– oil falling into negative prices
– North Korean leader health questioned
– COVID-19 was supposed to kill 2-5 million Americans (remember the Goldman Sachs memo?)

Yet here we are in late April and the S&P 500 is holding above its 50% retracement. And short interest remains elevated and conviction remains low.

We realize many investors were understandably expecting a “retest” of the March 2020 lows and potentially break below 2,200 towards 1,700. This could happen, but is there another gauntlet of headwinds worse than what we saw in the past 4 weeks? If not, we think it less likely.

But look below, the timeline shows that we start seeing easier comps and data in the coming weeks. The stimulus payments plus expanded unemployment cushions the social distance victim employees (restaurants, etc). And the Fed is supporting market liquidity.

And we continue to believe that even if stocks face a correction, we expect it to not warrant “repositioning” — keep in mind, this latter point is only my view. Rob Sluymer, our head of Technical Strategy, makes a valid point that equities need to work off an overbought condition. So he sees a correction to 2,600. If that happens, we would be buyers of that.